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What You Need to Know About the New York Estate Tax

The estate tax rate in New York ranges from 3.06% to 16%. Estates over $5.25 million are subject to this tax. Whether you’re thinking about your own legacy as you enjoy your twilight years or if you’re the one dealing with figuring out your relative’s legacy, here is your all-in-one guide to New York estate tax laws. If you think you might be subject to the estate tax, you may want to consider enlisting the help of a financial advisor. SmartAsset’s financial advisor matching tool can help you find one.

New York Estate Tax Exemption

The New York estate tax threshold is $5.25 million in 2018. It is scheduled to increase to $5,490,000  in 2019 and then will increase with inflation each year after that.

This means that if a person’s estate is worth less than $5.25 million and they die in 2018, the estate owes nothing to the state of New York. New York has a “cliff” that impacts very wealthy estates. If the estate exceeds the $5.25 million exemption by less than 5%, it only pays taxes on the amount that goes over the threshold. If the total value is more than 105% of exemptable amount, taxes are paid on the entire estate.

Here’s an example of how that works: 105% of $5.25 million is $5.5125 million. If your estate is worth between $5.25 million and $5.5125 million, you only pay tax on the amount that exceeds $5.25 million. So if your estate is worth $5.4 million, your taxable estate is only $150,000. If your estate surpasses $5.5125 million, all of your estate is taxable. If your total estate is $5.6 million, for example, you will pay estate taxes on all of that.

New York Estate Tax Rate

The estate tax rate for New York is graduated. It starts at 3.06% and goes up to 16% for taxable estates worth more than $10.1 million. The taxable estate is the value of the estate above the $5.25 million exemption (unless the estate reaches that cliff of 105% of $5.25 million, then the whole estate is taxable). Here’s how to figure out what you’ll be paying: First, figure out what your taxable estate is. If your total estate is worth less than $5.5125 million, the taxable estate is the total amount minus $5.25 million. So if your estate is worth $5.35 million, the taxable amount is $100,000.

Next, find your taxable estate bracket in the chart below. The base taxes amount in the second column is what you owe on money that falls below your tax bracket. Then figure out by how much your estate exceeds the lower limit of your bracket and multiply that number by the marginal rate. Add that number to your base and you should know what you owe.

Here’s an example: Let’s say your total estate is worth $6 million. That exceeds the cliff, so all of it is taxable. Next, we find where that number falls on the chart. The base tax for the bracket is $402,800. The bottom of the threshold is $5.1 million, so we subtract that from $6 million and get $900,000. That amount multiplied by the marginal rate of 12% is $108,000. When we add that number to the base rate, we get a total tax of $510,800 on a $6 million estate.

NEW YORK ESTATE TAX RATES
Taxable Estate* Base Taxes Paid Marginal Rate Rate Threshold**
$1 – $500,000 $0 3.06% $1
$500,000 – $1 million $15,300 5.0% $500,000
$1 million – $1.5 million $40,300 5.5% $1 million
$1.5 million – $2.1 million $67,800 6.5% $1.5 million
$2.1 million – $2.6 million $106,800 8.0% $2.1 million
$2.6 million – $3.1 million $146,800 8.8% $2.6 million
$3.1 million – $3.6 million $190,800 9.6% $3.1 million
$3.6 million – $4.1 million $238,800 10.4% $3.6 million
$4.1 million – $5.1 million $290,800 11.2% $4.1 million
$5.1 million – $6.1 million $402,800 12.0% $5.1 million
$6.1 million – $7.1 million $522,800 12.8% $6.1 million
$7.1 million – $8.1 million $650,800 13.6% $7.1 million
$8.1 million – $9.1 million $786,800 14.4% $8.1 million
$9.1 million – $10.1 million $930,800 15.2% $9.1 million
Over $10.1 million $1.082 million 16% $10.1 million

*The taxable estate is the amount above the exemption of $5.25 million.
**The rate threshold is the point at which the marginal estate tax rate goes into effect.

What Is the Estate Tax?

Estate tax is what it sounds like: a tax levied on the estate of a deceased person prior to being dispersed to their heirs. You may have heard it referred to as the “death tax.” It does not apply to all estates, only those that reach a certain threshold of value, and that value differs from state to state.

Estate tax should not be confused with inheritance tax. Inheritance tax is money paid by the person who received the money once it has been dispersed. Estate tax is taken by the government from the estate of the deceased before their heirs receive it.

New York Inheritance Tax

There is no inheritance tax in New York. If you’re getting money from a relative, you don’t have to give any of it to New York state. If the person who died lived in another state, though, make sure to check that state’s inheritance tax rules in case they apply to you.

For example, Pennsylvania has an inheritance tax that may apply to you if the person leaving you an inheritance lived in the Keystone State.

New York Gift Tax

New York does not currently have a gift tax, meaning that if someone wants to avoid their estate having to pay high taxes, they can give away money as gifts before they die. One important caveat, though: gifts made within three years before the person dies are counted toward establishing a person’s estate total, so you can’t give all your money to someone on your deathbed to avoid paying taxes.

The federal gift tax applies to gifts of more than $14,000 for 2017 and $15,000 for 2018.

New York Estate Tax for Married Couples

When someone dies, money that goes to their spouse is not subject to the estate tax in New York or at the federal level (more on this in the section below). When the second spouse dies, any amount of the estate exceeding $5.25 million will be subject to normal New York estate tax rules, i.e. the New York estate tax exemption is not portable between spouses.

Some couples will try to partially get around this by establishing a trust equal to the estate tax exemption and exposing it to the estate tax upon the first spouse’s death, meaning that money won’t be taxed when the second spouse dies.

Federal Estate Tax

There is also a federal estate tax. The federal estate tax kicks in at $11.18 million in 2018, after changes to the tax code were signed into law at the end of 2017. On the federal level, the estate tax exemption is portable between spouses. This means that with the right legal steps, a married couple’s estate exemption can be doubled when the second spouse dies. So a couple could protect up to $22.36 million of their estate from federal estate taxes.

For those estates that still exceed this amount, the tax rate tops out at 40%. The chart below has the full list of graduated tax rates.

You can use the same process described above in the New York Estate Tax section to figure out your federal estate tax burden.

FEDERAL ESTATE TAX RATES
Taxable Estate* Base Taxes Paid Marginal Rate Rate Threshold**
$1 – $10,000 $0 18% $1
$10,000 – $20,000 $1,800 20% $10,000
$20,000 – $40,000 $3,800 22% $20,000
$40,000 – $60,000 $8,200 24% $40,000
$60,000 – $80,000 $13,000 26% $60,000
$80,000 – $100,000 $18,200 28% $80,000
$100,000 – $150,000 $23,800 30% $100,000
$150,000 – $250,000 $38,800 32% $150,000
$250,000 – $500,000 $70,800 34% $250,000
$500,000 – $750,000 $155,800 37% $500,000
$750,000 – $1 million $248,300 39% $750,000
Over $1 million $345,800 40% $1 million

*The taxable estate is the total above the exemption of $11.18 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.

Overall New York Tax Picture

New York is a moderately tax-friendly state for retirees. Social Security is not taxed. New York income tax rates range from 4.00% to 8.82%. Money from pensions or other retirement accounts are deductible at up to $20,000. New York City also collects its own local income taxes. If you live within the five boroughs, keep that in mind. You can see what your take home pay is with taxes considered using SmartAsset’s New York paycheck calculator.

The overall effective property tax rate in New York is 1.5%. Property tax is actually lowest in New York City, where it is just 0.84%. The state sales tax rate is 4%, and average effective sales tax is 8.4%, when various county and city rates are considered. This puts it in the top 10 of state sales taxes throughout the country.

Estate Planning Tips

  • If all of this is confusing to you, there are resources that can help. Taxes, especially for families with a big base of assets, can be complicated. If you think you might need help figuring out your finances – or what your finances will look like when a loved one dies – you might want to consider finding a financial advisor. SmartAsset’s financial advisor matching tool can pair you with an advisor in your area who fits your specific needs. Here’s how it works: You’ll answer a short series of questions about your financial situation and personal preferences. From there, the system will match you with up to three potential financial advisors. They’ll be given your information and will contact you to see if you want to work with them.
  • Don’t forget that you’ll also receive Social Security payments in retirement, and those will also be part of your estate. You can use SmartAsset’s Social Security calculator to estimate what those payments will be. Knowing what is in your estate is key to developing a good plan.
  • When writing a will, make sure you name a guardian for your children. It isn’t pleasant to think about, but taking care of the non-financial aspects of your estate allows you to have peace of mind and to focus on other parts of your financial planning.

Photo credit: ©iStock.com/Pgiam, SmartAsset, ©iStock.com/Eloi_Omella

Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing. When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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